Research Note - Playmaker Capital Inc. (PMKR:TSXV,$0.42|BUY $1.25 TARGET) Key Takeaways From Investor Day
Yesterday, we attended Playmaker Capital’s Investor Day which featured presentations from various leaders in the PMKR ecosystem. The event reaffirmed our confidence in the management team and the business model as a whole, especially when the stock trading under 10x forward EBITDA. Our key takeaways from the event can be found below.
Acquisition of Wedge Traffic. Yesterday, PMKR announced the acquisition of Wedge Traffic for a total consideration of $31.2M. Wedge Traffic is an affiliate revenue business that operates eight web properties across 16 states and the province of Ontario. Wedge’s web properties display state-by-state promotions, welcome bonuses, actionable insights, and long-term betting lines, aiming to deliver audiences to 15 regulated online sportsbooks and casinos. The Wedge founders Dan Kersh and David Copeland will join Playmaker’s senior leadership team. The total consideration was comprised of $8.5M in cash, 3.7M PMKR shares at C$0.75/share and $20.7M in contingent consideration. We think the stock component being at a large premium to the current price underscores PMKR’s strong vision and ecosystem. Integration and synergy initiatives are expected to begin after Q1/23.
Over the last twelve months, Wedge posted $5.5M in revenue and $3.1M in EBITDA (56% EBITDA margin), implying 5.7x sales and 10.1x EBITDA. We note that the affiliate business is much higher margin than PMKR’s current business and this acquisition will kickstart is foray into that segment, providing justification for future margin expansion. PMKR has completed 15 acquisitions since April 2021 and still has considerable dry powder ($20M+) to deploy on future acquisitions that will likely focus on the U.S. region.
Organic growth to accelerate due to FIFA World Cup. The 2022 World Cup is scheduled to start in late November; PMKR has a large portion of its assets focusing on soccer content in Latin America. This is a major worldwide event that will boost organic growth to >30% YoY in Q4/22.
Focus on profitability. While EBITDA margin has declined modestly in H1/22 due to PMKR making investments in its platform, we are expecting margins to scale upward through Q3 and Q4 with regular seasonality and the addition of Wedge. We expect margins to settle in at 31% for the full year and expand further in 2023. We remind readers that PMKR is one of the few companies in the gambling space consistently posting 25%+ EBITDA margins.
Attractive Valuation. PMKR currently trades at 1.9x 2023E sales and 7.3x 2023E EBITDA (including corporate expenses). We would like to reiterate that Enthusiast Gaming (EGLX:TSX) recently sold various legacy media assets for 4.5x sales, providing meaningful upside PMKR’s current valuation. At 4.5x sales, PMKR would be worth C$1.00/share, representing 138% upside.
We are maintaining our BUY rating and C$1.25/share target price based on 15.0x 2023E EBITDA (previously 6.0x 2023E sales).